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Information and Communications Technology

The New Zealand Sectors Report 2013

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ISSN 2324-5069 (Print)

ISSN 2324-5077 (Online)

July 2013

MBIE develops and delivers policy, services, advice and regulation to support economic growth and the prosperity and wellbeing of New Zealanders.

MBIE combines the former Ministries of Economic Development, Science + Innovation, and the Departments of Labour and Building and Housing.

3

New Zealand Sectors Report 2013

The New Zealand Sectors Report consists of the Main Report

covering all sectors in the economy and six additional, separate,

reports providing an in-depth analysis of six individual sectors. The

seven reports are:

1 The New Zealand Sectors Report 2013: Main Report

Featured Sector Reports:

2 Information and communications technology (ICT)

(this report)

3 High technology manufacturing

4 Construction

5 Petroleum and minerals

6 Tourism

7 Knowledge intensive services

occupations across the whole economy in 2012, from the financial

and insurance sector to manufacturing and agriculture. This is an

increase of 11,184 workers since 2003.

Many of the initiatives the Government is implementing through its

Business Growth Agenda are targeted towards the future growth of

this sector – such as encouraging business innovation through

Callaghan Innovation, rolling out Ultra-Fast Broadband fibre to 75 per

cent of New Zealand households, and increasing access to capital

for small, high-growth businesses through the New Zealand Venture

Investment Fund.

One of the main challenges facing the sector is the international

shortage of highly skilled IT professionals. Around half of computer

system design firms report moderate or severe difficulty in recruiting

managers and professionals, and more than half report moderate or

severe difficulty in recruiting technicians and associated

professionals. The government is working alongside industry to

encourage more students to train as IT professionals.

For New Zealand to grow incomes and jobs, we need all sectors of

our economy to operate successfully. The information in this report will

help investors, business and policy makers to remove constraints so

we can further develop New Zealand’s high performing ICT sector.

Hon Steven Joyce MINISTER FOR ECONOMIC DEVELOPMENT MINISTER FOR SCIENCE AND INNOVATION MINISTER FOR TERTIARY EDUCATION, SKILLS AND EMPLOYMENT ASSOCIATE MINISTER OF FINANCE

I am pleased to present this report on the fast-growing,

high-achieving ICT sector and its impact on jobs, skills,

innovation and growth.

New Zealand’s traditional economy, exports and markets are

changing, and the pace of change is accelerating.

Our traditional export sectors, such as food and beverage, forestry

and tourism, remain important components of the economy.

Increasingly we are also seeing growth in emerging export sectors

such as information technology (IT) services (averaging 11 per cent

per annum since 2002), high-technology manufacturing and

processed foods.

IT services in particular are generating significant innovation,

attracting investment in established firms and start-ups, and creating

wealth and high-skilled employment opportunities for New

Zealanders.

The report focuses mainly on the IT services sector formally called

‘computer system design and related services’. The number of firms

in computer system design has grown by more than 3,300 since 2002.

The sector is investing strongly in research and development - up

18.9 per cent since 2011. Exports of computer and information

services have increased by 85 per cent since 2006 with Australia and

North America being key markets. Wages and salaries in computer

system design are twice the New Zealand average and are growing

faster than the average.

Digital technologies and automation are also driving significant

change across the whole economy. Traditional exports are

increasingly enabled by digital technology or have a software

component. A total of 62,252 workers were employed in ICT related

Minister’s foreword

5

agree with Statistics New Zealand data due to differences in the

group of exported products being allocated to the relevant sector.

Use of the term ‘firm’

The term ‘firm’ is used generically. It includes all relevant entities,

some of which are not firms at all, such as those in the charities,

government, education and health sectors.

Example firms

This report provides examples of firms which are believed to belong to

the sector. The example firms provide a partial answer to a key

question on the composition of a sector: which firms are in it?

Firms are classified by Statistics New Zealand as being part of an

industry sector according to their predominant activity. This is

explained fully on the Statistics New Zealand website. The

classification of each firm to a sector using the Australian and New

Zealand Standard Industrial Classification (ANZSIC) system is

confidential to Statistics New Zealand.

Because of the confidentiality rules, MBIE has used other publicly

available sources to determine which firms are likely to belong to a

sector. These sources may be inaccurate or incomplete.

Quotes and interviews

A limited number of interviews with sector leaders were carried out in

the preparation of this report. Anonymous quotes from these

interviews that illustrate key themes have been included. The

opinions expressed are those of the industry participants. Additional

quotes from public sources have also been used.

A full explanation of the data sources and limitations is provided in

the Appendix.

Defining sectors

A sector is an area of economic activity in which businesses or other

organisations (e.g. government or voluntary organisations) share a

similar market or produce a similar product or service. Examples are

retailing (businesses that sell products directly to consumers) and

telecommunications (provision of communications services using

wired or wireless infrastructure).

This report uses data grouped into sectors using the Australian and

New Zealand Industrial Classification codes (ANZSIC codes). A

business or other type of organisation is classified to an ANZSIC code

based on its predominant activity. The term ‘sector’ is often used

interchangeably with the term ‘industry’.

Sources

The numbers in this report come from multiple sources. Data

sourced from Statistics New Zealand is the latest that was available

as at mid-December 2012. Some of this data is provisional and may

change.

The data used covers different time periods for different metrics. For

example, goods exports is for the year ended June 2012, while

labour productivity is for the year ended March 2010.

Customised data for ICT

ICT is a cross-cutting sector combining several ANZSIC codes.

Customised data has been provided by Statistics New Zealand for

this report.

Export data

Some export data for cross-cutting sectors uses international sources

in order to provide a longer time series. These sources may not

Key terms and data limitations

6

Report objective

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The New Zealand Sectors Report Series is a set of seven publications that

provides a factual source of information in an accessible format on the key sectors that make up the New Zealand economy. New Zealand needs to encourage all industry sectors to operate at their peak potential to meet the goals of our Business Growth Agenda. This report provides information on New Zealand’s ICT sector, with a special focus on IT services. The report does not intend to draw policy conclusions. Its aim is to provide a

comprehensive report card on the state of New Zealand’s ICT Sector for business people, exporters, policy makers, media commentators, economists, academics, students and anyone with an interest in New Zealand’s economic development. The Ministry of Business, Innovation & Employment (MBIE) welcomes comment and feedback on this report, and on the measures the Government is taking to facilitate the development of a competitive and successful ICT sector.

Email [email protected]

TABLE OF CONTENTS PAGE

Foreword 5

Key terms and data limitations 6

Report objective 7

Executive summary 10

Definition and key themes 13

Government’s Business Growth Agenda 19

ICT sector snapshot and industry characteristics 25

IT services sector: focusing on computer system design and

related services 33

Telecommunications 69

The digital economy 77

Appendix: glossary, definitions, sources, methodology and

limitations 87

Further reading 99

9

Executive summary

*One of the seven publications that comprise the Sectors Report 2013. **Australia and New Zealand Industrial Classification system. 10

adoption of smartphones and other mobile devices. At the same

time revenues from traditional fixed-line telephony services are

declining.

IT services and product firms

- Of the three industries covered, IT services is found to be

generating significant innovation, attracting investment in

established and start-up businesses, and generating export and

employment growth and value creation.

- For this reason, the bulk of the report focuses on the largest IT

services sub-sector, which has the formal name of ‘computer

system design and related services’ (ANZSIC** code M7000).

- The report finds that IT businesses can be divided into two broad

types: those delivering IT services and those developing IT

products.

- IT services firms are mainly focused on the domestic market,

providing IT infrastructure to medium and large organisations. This

group includes many multi-nationals. They are important to the

New Zealand economy, enabling large corporates and

organisations (such as government departments) to drive

efficiencies and develop new products, services or forms of

service delivery through the application of ICT. They are critical to

driving the digitisation of the economy.

- On the other hand, IT product firms are focused on developing

new applications and web-services typically aimed at a particular

industry or process. These firms are highly innovative and research

and development (R&D) intensive. They have the potential to be

significant exporters and build large international businesses.

In many cases these firms are developing products based around

cloud computing and the software as a service model.

General

- Information and communications technology (ICT) captures

three important activities in the economy: ICT manufacturing,

telecommunications and information technology (IT) services.

This report provides a snapshot of the aggregated data for these

activities. Collectively they contribute 5 per cent of GDP and

employ 73,392 New Zealanders; 3.2 per cent of the workforce.

- The report finds major differences in the structure and

characteristics of the three industries captured by the definition

for ICT. The bulk of the report focuses on IT services.

ICT manufacturing

- ICT manufacturing is a small sub-set of high technology

manufacturing and so is not considered in detail in this report.

Data on ICT manufacturing is captured in the High Technology

Manufacturing Report.*

Telecommunications

- The telecommunications industry provides the communications –

or the ‘C’ component of ICT. This is a critical part of the enabling

infrastructure underpinning the digital economy.

- New Zealand has well-developed telecommunications

infrastructure. The Government is working with the sector through

the Ultra-Fast Broadband (UFB) and Rural Broadband Initiative

(RBI) programmes to improve Internet access and speed for all

New Zealanders.

- The telecommunications sector is domestically focused, and is

not a significant contributor to exports.

- Telecommunications businesses globally and in New Zealand are

having to develop new business models to meet the increasing

demand for high speed data, particularly with the rapid

Executive summary continued

*Australia and New Zealand Industrial Classification system. 11

Investment

- The sector is attracting increased investment from angel and

venture investors, and there is a small but growing number of firms

listing on the sharemarket.

The Digital Economy

- Sixty two thousand workers were employed in ICT occupations (as

distinct from being employed by ICT firms) across the whole

economy in 2012, 11,000 more than in 2003.

- The report finds that information technology is increasingly

pervasive across all economic and social activities, and is driving

significant and sometimes fundamental change in most sectors of

the economy.

- The implication is that some traditional occupations and industries

will disappear or change radically (as has occurred with the

music industry), while new opportunities for value creation and

economic growth emerge.

- Firms which may be formally classified as being in the IT sector

often see themselves as being part of the sector they serve. For

instance, Konnect Net sees itself as part of the insurance industry,

although the service it provides is entirely ICT enabled.

Business and employment

- The computer system design sub-sector has shown strong

employment growth, adding 1,630 jobs in 2012 across a range of

occupation types.

- The number of firms in the sector has grown by 40 per cent since

2002, with an additional 266 firms in total, 142 of which are mid-

sized (10–49 employees).

- Half of all employees in the sub-sector are in Auckland, a quarter

in Wellington, with Christchurch accounting for 10 per cent.

- By far the majority of jobs are professional and technical, with

wages and salaries twice the New Zealand average. Firms in the

sector report increasing difficulty in recruiting skilled staff.

Expansion and R&D

- Close to half of the firms in the sector invested in expansion in

2012, almost twice the New Zealand average, and a third

undertook R&D, four times the New Zealand average. Firms

undertaking R&D invested on average $1.1 million in R&D

activities in 2012.

Exports

- Exports of computer and information services showed a

compound annual growth rate (CAGR) of 11% in the period 2006

– 2012, 3% higher than the growth in computer and information

services imports. If this trend continues New Zealand will become

a net-exporter of computer services in the next few years.

- Australia and North America are the major markets and have

driven growth. Exporters report access to finance and distance

as barriers, but also report fewer concerns about the exchange

rate than for New Zealand exporters generally.

DEFINITION AND KEY THEMES

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OECD definition for ICT* The ICT sector includes activities which are also classified as part of high technology

manufacturing and knowledge intensive services

Basic chemical & chemical product

manufacturing (excluding

pharmaceuticals)

Adhesive, and paint & coatings

manufacturing

Motor vehicle & motor vehicle part

manufacturing; and railway rolling

stock manufacturing

Machinery & equipment

manufacturing (except those in high

technology manufacturing)

Aircraft manufacturing & repair

Pharmaceutical & medicinal product

manufacturing

Medical & surgical equipment

manufacturing

Photographic, optical & ophthalmic

equipment manufacturing

Professional, scientific & technical services

Financial and insurance services

Internet publishing & broadcasting; sound

recording & music publishing; and other

information services

Rental & hiring services (not real estate)

Employment & administrative services

Postal & courier services

Electric cable & wire manufacturing

Wholesaling of ICT goods

Communication equipment

manufacturing

Computer & electronic office


Other electronic equipment

manufacturing

Other professional & scientific


Telecommunications services

Internet service providers, web search

portals, & data processing services

Computer system design & related

services

(main focus of this report)

Software publishing

15

Medium-high technology

manufacturing High technology manufacturing Knowledge intensive services

ICT

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*The full definition of the ICT sector, including Australia and New Zealand Industrial Classification (ANZSIC) codes, is provided in the Appendix

Key themes: New Zealand industry A number of key themes emerged in the ICT sector

Theme Description Details

‘Weightless’

exports

The export of intellectual property and ideas.

In the context of ICT, typically software

applications or services that utilise ICT

platforms, such as software as a service.

• Examples include Orion Healthcare, Xero and Green Button.

• Weightless exports are not costless. While the product or service is weightless in the

sense of being computer code, there is significant cost in sales and marketing,

after-sales service, customisation and installation – much of this cannot be done remotely and requires a presence in-market.

Increased

investment

ICT sector attracting increasing interest from

angel and venture investors and on the NZX.

• In 2011, two-thirds of venture and early stage investments were in IT or software

companies.

• The initial capital requirements for a software-as-a-service business are significantly

less than for high technology manufacturing. Most of the cost is in people. Once

the business is proven, however, the capital requirements to scale quickly and build

an international network for sales, marketing and customer support are significant.

Demand for

skills

Increased use of ICT across the economy

generating employment growth across a

range of skill-sets, including software

engineering and development, project

managers, marketers, sales, administrators and business analysts.

• When you go to the knowledge intensive side, you create employment here and

that plays to our natural advantages – our geography, our good schooling system

and our quality of life. – Director, technology company.

• The best guesstimate is that we will need twice as many people working in the

technology industry – broadly defined – as we have today. The biggest bottleneck is the scarcity of people. – CEO, industry body.

Innovation Information and communications

technologies providing platform for

innovation across all sectors.

• The ICT sector produces twice as many innovations that are ‘new to the world’ than

the New Zealand average.

• I see in the ICT sector some stunningly good ideas and guys that can build services

and sometimes products on a shoestring – Director, technology company.

Mobile

connectivity

Rapid uptake of smartphones, tablet

computers and other mobile devices.

• Mobile broadband users increased by 34% in the June 2012 year to 2.5 million, more

than half the population.

• Vodafone has launched a 4G network with data speeds up to 10 times that of 3G.

Developing

capabilities

New Zealand companies gaining experience

and building local and international business

networks in support of export growth.

• Kiwi Landing Pad established in San Francisco with support from private investors

and government.

• Kiwi Landing Pad looking good and Kiwi businesses doing the business in San

Francisco... pic.twitter.com/zpjKhEnbum – Sam Morgan tweet, March 2013.

• We always knew that New Zealand companies had good products, but they just

didn‟t know how to get in. Now there‟s a little ecosystem starting to develop

especially in San Francisco and Washington DC. – CEO, industry body.

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Key themes: technology The pace of technological change is increasing, driving change in all sectors

Theme Description Details

Cloud

computing

Cloud computing is the use of computing

resources (hardware and software) that are

delivered as a service over the Internet. This

enables data and software applications on remote servers to be accessed on any

computer or device, anywhere, anytime.

• Enables individuals and businesses to have access to highly sophisticated

computing resources, data or applications at low cost.

• Provides a platform for different business models, e.g. software as a service (Xero’s

accounting services, Diligent Board Member Services’ Board Portal) • A familiar example is the music service Spotify, which provides individuals access to

a vast database of recorded music that can be streamed to many devices.

Cyber security

/ privacy

Big data enabling governments and

businesses to analyse and track individual

behaviour. Ubiquitous use of electronic

technology for all activities and functions

increases vulnerability to cyber attacks and

security breaches.

• In 2012, 8% of firms reported a security attack that resulted in the loss of data or

time, or damage to software – Statistics NZ, Business Operations Survey, 2012

• …companies ranging from IBM to Google to Microsoft are racing to combine

natural language processing with huge Big Data systems in the cloud that we can

access from anywhere. These systems will know us better than our best friend. – Greg Satell, Forbes.com, 13 March, 2013.

Internet of

things / remote

sensing

Increasing numbers of objects are

embedded with sensors and gaining the

ability to communicate. The resulting

information networks contribute to big data

and highly customised applications and

management.

• MetService has access to over 2000 Automatic Weather Stations in New Zealand

which make approximately one billion observations per year. Over half of these

stations are in rural areas. MetService collects many gigabytes of data each day.

In 2014–15 the new Japanese weather satellites Himawari 8 and 9 will each deliver

one terabyte of data per day.

• Proposal to make Christchurch a ‘sensing city’ streaming real-time information on

everything from traffic to weather and water systems, and even how many people

are on the city's streets. – media report; stuff.co.nz., April 2013.

Big data Datasets too large to be manipulated by

ordinary database programmes. This data

comes from everywhere: sensors used to

gather climate information, posts to social

media sites, digital pictures and videos,

purchase transaction records (credit cards,

loyalty cards) and cell phone GPS signals

and applications.

• The use of big data will become a key basis of competition and growth for

individual firms… The use of big data will underpin new waves of productivity

growth and consumer surplus. – McKinsey Global Institute.

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THE GOVERNMENT’S BUSINESS GROWTH AGENDA

19

20

Encouraging business innovation

• The establishment of Callaghan Innovation to encourage business

innovation in high-value manufacturing, including ICT

manufacturing.

• Use expanded Tech NZ co-funding to encourage business

innovation.

• Increase the proportion of total public innovation investment

dedicated to firm-led innovation.

• Identify and implement improvements to incubator settings,

including examining international models.

• Maximise the competiveness of the New Zealand business

environment to encourage innovation.

• Investigate whether tax treatment of R&D is discouraging firm R&D.

• Simplify and modernise government procurement policy to

encourage innovation and firm participation.

• Continue to increase annual public science and innovation funding

towards 0.8% of GDP as fiscal conditions allow.

The Government’s Business Growth Agenda Actions to support ICT innovation

Developing innovation infrastructure

• Roll-out Ultra-Fast Broadband through fibre to 75% of New

Zealanders by end of 2019.

• Roll-out the Rural Broadband Initiative to deliver high quality

broadband and increase connectivity.

• Facilitate broadband uptake through e-education, e-health, e-

business, e-development.

• Manage the digital switchover and next generation mobile services.

• Implement a cyber-security strategy, establish a National Cyber

Security Centre to protect against cyber threats, and raise

awareness of cyber security issues.

• Investigate and encourage the development of Innovation Parks.

• Regulate mobile termination rates to improve competition.

• Accelerate digital television switch over to enable higher value use

of 700 MHz spectrum (4G spectrum) for ICT purposes.

21

The Government’s Business Growth Agenda Actions to improve skills availability and intellectual property settings

Growing the innovation workforce

• Increase investment in engineering studies at tertiary institutions and

lift graduate numbers by 500 per annum by 2017.

• Collect and provide better information on career prospects to

students and the tertiary sector.

• Highlight the role of entrepreneurship in business innovation through

annual Prime Minister's Business Scholarships.

• Investigate highlighting innovation careers in science, design,

engineering and maths to school students and their families.

• Establish annual Prime Minister’s Science Prizes to acknowledge and

reward scientific achievement.

• Maintain internationally competitive personal tax rates that

encourage highly-skilled workers to work from New Zealand.

Strengthening tertiary education

• Purchase additional tertiary places as required to meet demand

across the sector, including in engineering.

• Complete the introduction of performance-linked funding to focus

providers on achieving results for students.

• Publish employment outcome information and likely industry

demand indicators, to better inform prospective students about

study choices.

• Review the Essential Skills in Demand lists, to examine their

effectiveness in addressing skills shortages in the short- and long-

term.

Improving intellectual property settings

• Complete passage of the Patents Bill to more closely align New

Zealand’s patent settings with trading partners.

• Create a single trans-Tasman patents examination regime with

Australia to simplify patent applications.

• Investigate whether the intellectual property settings of public

institutions are optimal for technology transfer.

• Explore opportunities for government to improve the environment

for firms’ use of intellectual property.

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The Government’s Business Growth Agenda Actions to support exporters and businesses looking to expand internationally

Strengthening high-value manufacturing and services exports

• With Callaghan Innovation, and through New Zealand Trade and

Enterprise (NZTE) programmes Better by Design, Better by Lean,

Better by Strategy and through the Primary Growth Partnership,

assist firms to grow international capability, e.g through improving

supply chain integration using digital technology. (Farm IQ is a

Primary Growth Partnership example).

• Establish mechanisms to secure commercial export opportunities

on the basis of core public sector intellectual property and

expertise.

• Develop stronger ‘NZ Inc’ approach with business on cyber

security.

• Identify key issues for commercial service exporters and promote

export prospects.

Making it easier to trade from New Zealand

• Establish a single trade window for importers and exporters.

• Enhance the NZ Export Credit Office products and services,

improving guarantee products to support export growth.

• Implement Immigration Global Management System upgrade and

network configuration.

• Undertake 28 Minister-led trade missions over the parliamentary

terms to unlock strategic opportunities for business.

Helping businesses internationalise

• Deliver targeted services to approximately 2000 internationalising

firms, with an intensive focus on 500 firms. Of the current 500, 80 are

ICT firms. Examples of services include NZTE programmes such as

Beachheads, Path to Market and Better by Capital.

• Deliver multi-firm, high impact market development programmes

to accelerate the success of firms in the Health IT and Security

Technology sectors.

• Use the International Growth Fund (IGF) to assist high growth firms

to internationalise.

• Utilise the Better by Capital service to assist high growth firms to

plan for, and attract the growth capital required to achieve their

international growth plans.

• Deliver integrated knowledge on key markets to business from all

agencies operating off-shore.

• Develop with key stakeholders a broad, compelling, and flexible

New Zealand story that works for a range of exporters and sectors,

including tourism and education, and for immigration .

23

The Government’s Business Growth Agenda Actions to improve investment and access to capital

Strengthening equity markets

• Partially-list four State-owned enterprises on the NZX exchange.

• Investigate options for lower cost public listing.

• Pass the Financial Markets Conduct Bill to make it easier for listed

companies to raise capital.

• Make it easier for businesses to offer employee share schemes.

• Pass the Financial Reporting Bill to reduce unnecessary financial

reporting costs for business.

Supporting early stage and growth capital

• Increase access to capital for small, high-growth businesses by

supporting the New Zealand Venture Investment Fund.

• Deliver targeted services to help internationalising New Zealand

firms raise capital.

• Improvements to business R&D grants.

• Improvements to incubator programmes.

• Enable crowd funding and peer-to-peer lending.

• Provide more options for SMEs to raise capital by clarifying and

widening disclosure exceptions for SMEs seeking to raise capital

(e.g. offers to experienced investors, small offers).

Attracting foreign investment

• Encourage a more positive environment for international

investment and explain the benefits to New Zealanders.

• Align business law between New Zealand and Australia.

• Review investor, entrepreneur and worker policy settings with a

view to attracting migrants with the right skills and capital to invest.

Attracting skilled migrants and investors

• Review investor, entrepreneur and worker policy settings with a

view to attracting migrants with the right skills and capital to invest.

• Introduce Silver Fern Visa to provide employers with greater access

to young skilled migrants.

ICT SECTOR SNAPSHOT AND INDUSTRY CHARACTERISTICS

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Industry level financial performance

Total Growth (1yr)

This sector All sectors This sector All sectors

Total income per firm 2011# $1,923,412 $1,294,500 5.6% 5.2%

Total income per employee 2011# $453,027 $311,600 7.0% 4.0%

Surplus per employee 2011# $17,199 $24,000 -15.8% -12.7%

Return on equity 2011# 9.8% 6.6% down down

Debt ratio (liabilities/assets) 2011# 65.7% 64.1% up down

Capital stock per worker 2010 n/a $169,364 n/a 5.2%

* NZ is total employing firms, except total measured sector for productivity

** Cross-cutting sector: uses value add per employee for productivity, NZ average = 100%

#All sector total excludes some industries. Refer appendix, terms and definitions.

ICT snapshot (OECD definition) Situation Cross-cutting sector (data is aggregated and double-counted with other sectors)

Includes firms whose main activity is provision of goods and services which fulfil or enable the function of information processing and communication

by electronic means including transmission and display. Also includes firms which provide goods which use electronic processing to detect, measure

and/or record physical phenomena or control a physical process.

26

26

Example firms

Firm Turnover ($m) Employees Ownership

Chorus $613m (7 months

ending June 2012) 548 Listed NZX

Telecom 4,576m

(2012)

7,866

(2012) Listed NZX

Revera $38

(2012) 133

Acquired by

Telecom

Orion Health $100

(2012) 633 Private

Optimation (NZ) $48

(2012) 230 Private

Key services exports from this sector Key markets for this sector

Service

(aggregated ICT data)

Exports

($m; 2012) Country

Exports

($m: 2012)

Computer services $391.3 n/a

Communication services $183.6

Software royalties $123.2

News & information

services $21.5

Other royalties & franchises $15.5

Other $383.9 Other

TOTAL

all exports $1,119

TOTAL all countries

$1,119

Scorecard

Measure Total % of NZ* Growth Growth Growth

(1 year) (5 yr CAGR) (10 yr CAGR)

GDP 2010 (nominal) $8,405m 5.1% -4.6% 2.8% n/a

Real GDP 2012 n/a n/a n/a n/a n/a

Goods exports 2012 $745m 1.7% 11.4% -1.0% n/a

Employment 2011 73,398 3.2% 2.0% 1.1% 1.8%

Value added /

employee 2010

(nominal)**

$116,832 161.4%** 0.2% 1.1% n/d

Investment in fixed

assets 2010 $1,278m 4.2% -17.0% n/d n/d

No. of firms 2012 14,187 3.0% 1.4% 0.8% 3.2%

ICT snapshot (OECD definition) Performance Cross-cutting sector (data is aggregated and double-counted with other sectors)

Comment

• Sector value add growing

• Large employer: 73,398

• More workers overall: +11,754 (2001–11)

• Lost workers: -3,627(2009)

• More workers: +1455 (2011) • Productivity improving

• Goods exports recovering after GFC

• Services exports growing

• Number of firms increasing

• Fixed capital investment stable

• R&D and innovation rates high

• Return on investment: 10% (2011)

• Highly internationalised sector

27

Results from Survey: 2011

R&D & innovation rates

Export barriers:

Current exporters % firms

Export barriers:

Future exporters % firms Internationalisation %

R&D rate 1. Distance from markets 1. Limited experience in

expanding beyond NZ

% of ICT firms reporting

overseas income n/a

Innovation rate 2. Other 2. Limited access to finance

for expansion beyond NZ

% of ICT firms with off-

shore direct investment 11%

3. Exchange rate volatility/

Limited access to finance for

expansion beyond NZ

3. Limited knowledge about specific markets/

Low market demand or

increased competition

% of ICT firms >50%

foreign owned 19%

+3,862 firms

2002-12

+ 11.4% in 2012

The majority of IT workers are in other sectors, eg Fonterra has one of largest IT depts. in NZ

Investment averaging $1.4b per annum 2009–11.

Includes telecommunications, excludes media

Cross-cutting sector: value added per

worker

High

Medium

Low

Key trends, various timeframes: 10-year index (base =1000) except productivity is $ values – this sector vs all other sectors

$116,832

Cross-cutting sector: uses value added as a proxy for GDP

Number of firms by major ICT sub-sector By far the majority of ICT firms are in IT services

Number of firms by sub-sector

Firms; 2002–2012

28

IT services

IT wholesaling

ICT manufacturing

CAGR

11–12

-2.2%

1.9%

ABS

02–12

-327

+4137

0.2% +33

CAGR

02–12

-2.0%

4.2%

0.9%

Source: Statistics New Zealand, customised data drawn from New Zealand Business Demography Statistics (2012)

497 568 639 635 609 577 585 604 653 690 676

8,155 8,720

9,560 10,241

11,048 11,593 11,926 12,050 11,689 12,061 12,292

373

403

425

428

416 416

412 397 406

405 406

1,816

1,812

1,779

1,721

1,681 1,639

1,615 1,565 1,516

1,523 1,489

10,841

11,503

12,403

13,025

13,754 14,225

14,538 14,616 14,264

14,679 14,863

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Telecommun-

ications -2.0% +179 3.1%

Total 1.3% +4022 4.2%

10,670 9,630 10,180 11,270 12,100 12,920 13,880 13,930 13,830 14,030 14,980

20,913 21,865 21,700 24,185

25,240 26,720

28,005 28,245 25,940 27,470

29,145

4,420 4,950 5,130

5,300 5,435

5,445 5,265 4,700

4,760 4,750

4,855

12,280 12,400 12,640

12,790 13,040

13,070 13,180 12,780

13,440 13,530

13,240

48,283 48,845 49,650

53,545 55,815

58,155 60,330 59,655

57,970 59,780

62,220

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Number of employees by major ICT sub-sector Employment growth is driven by telecommunications and IT services; IT services added

1,675 jobs in 2012

Number of employees by sub-sector

Employees; 2002–2012

Note: totals may not match other pages due to rounding; Source: Statistics New Zealand Business Demography Statistics (2012)

29

IT services

IT wholesaling

CAGR

11–12

-2.1%

6.1%

ABS

02–12

+960

+8,232

2.2% +435

CAGR

02–12

0.8%

3.4%

0.9%

Telecommun

-ications 6.8% +4,310 3.5%

Total 4.1% +13,937 3.2%

Excludes self-employed; total different from scorecard p 26.

Includes all occupation types employed by ICT firms

+ 1,675 jobs in 2012.

Vodafone’s purchase of

Telstraclear and

Telecom/Chorus split is likely

to result in job rationalisation.

ICT manufacturing

OECD definition: industry comment Industry leaders commented that aggregated data on the ICT sector is misleading

• ICT is a misleading description. IT and telecommunications are really two quite different sectors. The IT sector

is a story of growth. Compare that to the financial performance of the telecommunications sector, and

what you see is a tapering off and not a huge amount of growth. What this results in is a picture that

understates the contribution that IT is making and doesn‟t recognise the increasing head-winds in the

telecommunications industry.

– CE, industry body

• I think about ICT as the telcos or the specific software companies, and then the digital economy is separate.

So how is the rest of the economy using ICT? How are farmers using the systems of geo-spatial technology to

improve irrigation efficiency?

– New Zealand representative, very large multinational

• It‟s hard to align these categorisations with the real world. Intuitively they don‟t make sense. IT services and

ICT manufacturing are fundamentally different business models. The capital requirements for software are

very different to manufacturing devices. The two business areas don‟t overlap.

– Partner, technology law firm

• There needs to be a clearer differentiation between those [multinational] companies that are in New

Zealand providing services, and those New Zealand companies that are doing creative stuff and are

looking to expand internationally.

– CE, small-medium IT product firm.

• We would see value in differentiating between multinational and domestic companies. A lot of innovation

occurs in small and start-up New Zealand-owned companies that have the potential to grow quite rapidly.

The thing you‟ve got to be mindful of is that grouping certain organisations together may not be

representative. IT services companies might include customer services related staff in call centres. If you

bundle these together with pure IT companies, you are looking at an average salary that is not

representative of the opportunities that might be there.

– CE, industry association

30

ICT sector: industry characteristics Firms in the three different activities captured by the definition for ICT have very different

dynamics and capital requirements

ICT sub-sector Description Characteristics

ICT manufacturing Manufacturing of physical devices or components.

Will contain a software component, typically

embedded in the device or product (a chip needs

some code for it to do anything).

ICT manufacturing is a sub-set of high technology

manufacturing. It is an engineering-based activity

that is more capital intensive than software-based

businesses.

IT services IT services firms typically implement and administer IT

systems for medium to large organisations.

IT product firms typically develop software and/or

web applications for a specific purpose (e.g. provide

accounting services).

Low capital requirements to get established, develop

and launch a product, as the main cost is human

resources.

Higher capital requirements to scale and develop an

international customer base.

Telecommunications Telecommunications is a network industry. Firms

provide telecommunications services using wireless or

wired infrastructure.

A scale operation with high capital requirements,

e.g. in establishing wireless or wired (such as fibre)

networks and associated equipment and in

upgrading these to latest technology, such as 4G.

In response to feedback, the bulk of this report focuses on the largest IT services sub-sector – computer system

design and related services.

Firms classified as ICT manufacturing are also captured by the definition for high technology manufacturing.

Refer to the High Technology Manufacturing Report available from www.mbie.govt.nz

31

IT SERVICES SECTOR

Focusing on computer system

design and related services

33

IT services sub-sectors

The IT services sector is made up of six sub-sectors, covering a wide range of

activities

34

Sub-sector Description ANZSIC code* Examples

Other goods and

equipment rental and

hiring n.e.c.

Firms mainly engaged in hiring or leasing of goods and equipment not elsewhere

classified, including electronic equipment.

L6639 Vidcom New

Zealand

Computer system design

and related services

Firms engaged in providing expertise in the field of information

technology. Includes consulting services around computer hardware programming

and software, internet and web design. Also includes customised software

development (except software publishing), software installation services and systems

analysis services.

M7000 Orion

Healthcare

For the purposes of this report it is assumed that software-as-a-service businesses (for

example) are captured in this classification. In any case, as the largest IT subsector, it is

assumed that the data is representative of the structure and dynamics of New

Zealand’s cohort of IT firms.

Software publishing Firms mainly engaged in creating and disseminating ready-made (non-customised)

computer software.

J5420 Pingar

Data processing and web

hosting services

Firms mainly engaged in providing electronic data processing or hosting services,

including web hosting, streaming services or application hosting and application

service provisioning. Includes provision of complete processing and specialised reports

from data supplied by customers or automated data processing and data entry

services.

J5921 Revera

Electronic information

storage services

Firms mainly engaged in providing electronic information storage and retrieval services

(excludes library services).

J5922 Paymark

Electronic (except

domestic appliance) and

precision equipment repair

and maintenance

Firms engaged in repairing and maintaining electronic equipment (except domestic

appliances) such as computers and communications equipment, and/or highly

specialised precision instruments.

S9422 Kinetics Group

*Australia and New Zealand Standard Industrial Classification 2006 („ANZSIC‟)

Comparative size of IT services sub-sectors Computer system design is by far the largest IT services sub-sector, and is the focus of this

report’s analysis (see appendix for full definition)

Number of employees by sub-sector

Employees; 2012

Number of firms by sub-sector

Firms; 2012

Source: Statistics New Zealand, New Zealand Business Demography Statistics (2012) 35

78% 77%

3%

6%

13%

6%

5%

13%

1735

1390

3670

22,350

Software publishing, data

strorage and processing

Electronic precision equipment

repair

Equipment rental and hiring


308

707

1667

9610

Software publishing, data

strorage and processing

Electronic precision equipment

repair

Equipment rental and hiring


Business types in computer system design: service providers Two broad types of IT businesses in computer system design can be identified: services

businesses and product businesses

Services businesses

General characteristics of IT services businesses

High-value, high-volume, low-margin business. Typically larger firms that provide professional and IT infrastructure related services for medium to large corporates or other organisations, e.g. government departments. Systems are built primarily

using well-known technologies from Microsoft, Oracle, SAP and similar. Largely focused on the New Zealand market.

Most well-known multinational IT services firms operate in this space in New Zealand. These firms are important as they

support the digitisation of the New Zealand economy, through supporting government and businesses to do business

electronically. Some New Zealand owned firms, such as Datacom, have expanded internationally, particularly in Australia.

These international operations will generally not appear as exports in the statistics, although there may be management

fees which count as exports. Profits earned on the outwards direct investment will appear as direct investment income in

the balance of payments.

Example firms Services

Datacom (NZ, private)

Provides a full range of IT services such as IT management, software development, business applications, websites, intranets,

infrastructure outsourcing and data centres. Significant business in Australia and expanding into Asia.

Fronde systems (Listed, NZX)

Designs, builds and integrates software solutions particularly for large organisations, e.g. government departments. Also

operates in Sydney and Canberra.

Fujitsu (multinational)

Provider of IT products and services, including hardware, software, networking and business solutions, and more.

IBM (multinational)

Full range of IT products and services.

Optimation (NZ, private)

Services include development and integration, web enabled business, consulting, testing, outsourcing, managed resource

services and software support.

Intergen (NZ, private)

Provides a range of IT solutions for business, including provision and support of Microsoft-based solutions. Has established a

presence in Australia.

Selected examples of IT services firms operating in New Zealand

Sources; TIN 100 , 2012; various websites 36

Business types in computer system design: product developers New Zealand IT product firms typically focus on developing products that exploit a niche

opportunity; most are exporting

Product businesses

General characteristics of

IT product businesses

High-margin, high-growth potential businesses. Typically focused on developing applications or products focused on a

specific sector (e.g. health), or specific business operation (e.g. accounting) or a specific service (e.g. online auctions). These

businesses can be established and a product launched with a relatively small amount of capital, as the key assets are

intellectual property and human capability. Such businesses have the capacity to scale rapidly if the product is proved in the

market, although this takes significant additional capital. Staff requirements are low when compared to the value created.

These businesses have the potential to create significant value and appear to be driving exports in the sector. Typically,

exporting also involves establishing offices in market to provide sales, marketing and customer support services, as the

following examples demonstrate.

Selected examples of IT product firms operating in New Zealand

Sources; TIN 100 2012; various websites 37

Firm Industry/niche targeted Products Comments

Vista Entertainment

Solutions (Private)

Entertainment industry,

particularly multiplex

cinemas

• Software for management of all aspects of

a multiplex cinema.

• Customised software services to the

entertainment industry.

• Internet-based software-as-a-service

model, Veezi, for smaller cinemas that

cannot afford the deluxe Vista version,

using a pay-as-you-go cloud-based model.

• 23% market share globally, 53 countries.

• $30m revenue (est).

• 125 staff.

• Mixed business model, sells direct in some

countries and through partners in others

• Vista has a global partner network with

representatives in 11 countries.

Konnect Net (Private)

Insurance industry • Integrated suite of process management

services that facilitate the capture, transfer

and management of information across

the finance, health and corporate sectors,

replacing time-consuming paper based

systems.

• $12–15m revenue (est).

• 80 staff (est).

• Australian office established.

Xero (Listed, NZX)

Total market capitalisation

as at 6 May 2013

$1.612b

Accounting software for

small and medium

businesses

• Provides accounting software in the cloud

by subscription.

• Operates software-as-a-service business

model.

• $40m revenue (year ended 31 March,

2013).

• 350 staff (est).

• Offices in Melbourne, Sydney, Brisbane, San

Francisco and Milton Keynes.

Business types in computer system design: product developers continued

Selected examples of IT product firms operating in New Zealand

Sources; TIN 100 2012; various websites 38

Firm Industry/niche targeted Products Comments

COMRAD (Private)

Health, radiology • The COMRAD Radiology Information

System (RIS) – software solutions for

radiology market.

• $7m revenue (est).

• 42 staff.

• System installed in 390 practices in New

Zealand and Australia.

• Offices in Sydney and Melbourne.

Biomatters

(Private/VC)

DNA analysis. • Geneius; Molecular Profiler.

• Biomatters’ applications translate genomic

data into biological and clinical insights.

• $4m revenue (est)

• 21 staff

• Office in San Francisco

ARANZ Geo (Private)

Mining, geothermal and

hydrogeology.

• Core product is the Leapfrog® 3D

geological modelling software for the

mining, hydrogeology and geothermal

industries.

• ARANZ Geo has a 50-strong Christchurch

based team and a further 35 staff located

across a network of local support offices…

Around 98% of the company‟s software is

exported.

-scoop.co.nz, March 2013.

Gentrack (Private/VC)

Utilities & airports • Specialist billing, customer relationship

management and revenue assurance

software solutions for energy and water

utilities, heating schemes and airports. Also

provides business and industry consulting

and project management services.

• $25–30m turnover (est).

• 140 staff.

• Six offices worldwide including Melbourne,

Orlando, New York, London, Manchester.

Diligent Board Member

Services (Listed, NZX)

Total market capitalisation as at 6

May 2013

$594 million

Corporate governance • Provides directors with access to board

papers in the cloud, through a bespoke

portal, Boardbooks.

• Operates software-as-a-service business model, income listed as ‘licensing

revenue’.

• Provides services to 2,800 boards globally .

• $44m revenue (2012).

• 138 staff (global).

• Offices in New Zealand, United States, the United Kingdom, Australia, Singapore,

Canada, the Netherlands and Hong Kong.

Industry comment: IT product businesses

• IT product business develop their own software seeking to exploit an opportunity that is probably lower

volume and higher margin [than IT services businesses]. These businesses are the export sector. IT product

businesses are very scalable, but the scale is disconnected to the number of people they employ. They are

capable of creating enterprise value not linked to the cost-base of the business. They don‟t contribute to

GDP in the way a telco does. They are not producing the money a telco does circulating around the

system, except when they sell… the $700 million coming in from Fairfax on the day Trademe sold did affect

New Zealand‟s balance of payments that month – probably that year. And of course much of that capital is

being re-invested into new high growth businesses.


• Innovation is on the up in New Zealand. I‟ve seen more positive activity that is gaining traction than I‟ve seen

in a long time. Back in the early 2000s when they set up the HighGrowth challenges nobody got close. And

we‟re starting to see some people getting close now. Back then the world wasn‟t ready. Now with the

Facebook revolution, Paypal and others, those things have just changed the way we think about stuff.

We‟ve learnt from them to give away our software. When people say „how much is your software‟ we say

„free‟. We don‟t give it to you. You get to use it. We build systems. We give you a system to do a specific

thing.

– CE, small-medium IT product firm

39

6,241 6,657

7,246 7,742

8,393 8,876 9,202 9,336 9,042 9,391 9,610

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Number of computer system design firms Computer system design has added 3,369 firms since 2002; growth in firm numbers resumed

in 2011 after dip in 2010

Number of firms

Firms; 2002–2012

40

Source: Statistics New Zealand, New Zealand Business Demography Statistics (2012)

Computer

system design

2.3% +3,369 4.4% Total

Includes firms with no employees

CAGR

11–12

ABS

02–12

CAGR

02–12

13,500 14,110 14,360 16,170

17,010 17,580 19,170 19,450 19,340

20,720 22,350

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Computer system design: number of employees Computer system design has shown strong employment growth

Number of employees


41 Source: Statistics New Zealand, New Zealand Business Demography Statistics (2012)

CAGR

11–12

ABS

02–12

CAGR

02–12


7.9% +8,850 5.2% Total

1,630 jobs added in

2012.

Computer system design: employment by firm size Employment growth has been driven by firms of all sizes

Note: totals may not match other pages due to rounding; Source: Statistics New Zealand Business Demography Statistics, 2012 42

2,100 2,350 2,540 2,840 2,970 3,240 3,390 3,520 3,550 3,550 3,670 1,110 1,320 1,330 1,320 1,500 1,540 1,600 1,690 1,650 1,730 1,810 1,880

1,850 1,970 2,290 2,360

2,950 3,110 2,870 2,840 2,730 2,690 1,890

1,830 2,080

2,100 2,530

2,860 3,520 3,590 3,630 3,880 4,340

1,640 1,750

1,560 1,860

2,100

1,850

1,960 2,480 2,690 2,820 2,530

4,870 5,010 4,880

5,750 5,560

5,140

5,590 5,300 4,970

6,010

7,310

13,490 14,110 14,360

16,160 17,020

17,580

19,170 19,450 19,330

20,720

22,350

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total

20–49

10–19

6–9

1–5

50–99

100+

CAGR

11–12

ABS

02–12

CAGR

02–12 7.9% 5.2% +8,860

21.6% +2,440 4.1%

+890 4.4%

11.9% +2,450 8.7%

-10.3%

-1.5% +810 3.6%

4.6% +700 5%

3.4% +1,570 5.7%

Number of employees by firm size


Firms moving into

100+ category.

+1,300 jobs in 2012 in

100+ category.

Computer system design: firms by employment size

75% of firms have no employees; these are likely to be private contractors

Number of firms by employee numbers (firms with six or more employees aggregated)

Firms; 2002–2012

43

4,830 5,095 5,572 5,901

6,436 6,763 6,943 6,996 6,710 7,035 7,164

1,010 1,137

1,232 1,369

1,429 1,544

1,640 1,721 1,715

1,718 1,779

401 425

442

472

528

569 619 619

617 638

667

6,241 6,657

7,246

7,742

8,393

8,876 9,202 9,336

9,042 9,391

9,610

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0

1–5

6–100+

Total

CAGR

11–12

ABS

02–12 CAGR

02–12

2.3% 4.4% +3,369

4.5% +266 5.2%

+769 5.8% 3.6%

1.8% +2,334 4%

Note: totals may not match other pages due to rounding; Source: Statistics New Zealand Business Demography Statistics, 2012

75%

Computer system design: firms by employment size continued The sector is adding mid-sized firms (20–49 employees) and large firms (100+ employees) at

a good rate; with a surge in 2011 & 2012

Number of firms by employee numbers (six employees and above)

Firms; 2002–2012

44

153 182 181 181

207 207 222 233 227 237 252

141 138 148 171

181 217

228 210 211 207 205

65 62

72 71

87

96

117 120 121 129 143

24 26

23 26

30

26

26 34 38 41

37

18 17

18

23

23

23

26 22 20 24

30

401 425

442 472

528

569

619 619 617 638

667

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total

20–49

10–19

6–9

50-99

100+

CAGR

11–12

ABS

02–12

CAGR

02–12

4.5% 5.2% +266

-9.8% +13 4.4%

+78 8.2% 10.9%

6.3% +99 5.1%

-1% +64 3.8%

25% +12 5.2%

Note: totals may not match other pages due to rounding; Source: Statistics New Zealand Business Demographics database

The sector added 10 firms with 100+

employees in 2010-2012; indicates

firms previously in 50–99 range

adding jobs.

Location Computer system design jobs are concentrated in Auckland, Wellington and Christchurch

Share of computer system design employees versus all employees by region

% employees; 2012

Source: Statistics NZ, Business Demography Statistics 45

Share of computer system design jobs Share of total jobs

51% of all jobs in the computer

system design sector are in

Auckland. 33% of all jobs in NZ are

in Auckland.

49%

25% 21%

33%

27%

9%

3%

9%

19%

14%

39%

51%

Computer system design Telecommunications NZ average

Managers and professionals Technicians and associated professionals Tradespeople Other

Composition of workforce by occupational group 82% of the workforce in computer system design are managers, professionals or

technicians

Workforce by occupational group*

% workforce; 2012

*Note: Total survey sample is 35,976 firms with six or more employees; 600 of these firms are in computer system design.

Source: Statistics New Zealand, Business Operations Survey (2012) 46

82%

52%

30%

Computer system design wages/salaries Wages/salaries in computer system design are twice the New Zealand average and are

growing faster

Average salary/wages

NZ$; 2009–2011

Growth in average salaries/wages

%; 2009–2011

Note: average wage is calculated by total salaries & wages paid, divided by number. of employees

Source: Statistics New Zealand, Annual Enterprise Survey 47

$93,517 $99,059

$103,563

$47,095 $48,801 $50,351

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

2009 2010 2011

Computer system design NZ average

5.9%

4.5%

3.6%

3.2%

2009 2010 2011


30% 30%

36%

29%

11%

13% 12%

20%

13% 13%

15% 14%

5% 6%

5% 6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2009 2010 2011 2012

Computer systems design; moderately difficult Computer systems design; severely difficult

NZ average; moderately difficult NZ average; severely difficult

Recruitment: managers and professionals Around half of computer system design firms report difficulty recruiting managers and

professionals, with severe difficulty increasing

Computer system design firms reporting severe or moderate difficulty in recruiting managers and professionals*

% firms; 2012


Source: Statistics New Zealand, Business Operations Survey (2011 & 2012) 48

Moderate plus

severe difficulty in

2012=49%

Moderate plus


2009=41%

Recruitment: technicians and associated professionals Computer system design firms report increasing difficulty recruiting technicians and

associated professionals

Computer system design firms reporting severe or moderate difficulty in recruiting technicians and associated professionals*

% firms; 2012


Source: Statistics New Zealand, Business Operations Survey (2011 & 2012) 49

28%

40%

35%

39%

14%

9%

13%

18%

10%

12%

11%

12%

5% 4% 4%

5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2009 2010 2011 2012

Computer systems design; moderately difficult Computer systems design; severely difficult

NZ average; moderately difficult NZ average; severely difficult

Moderate plus


2012=57%

Moderate plus


2009=42%

Industry comment: recruitment

• In high tech manufacturing the raw smarts come out of highly trained and expensive individuals, like

electrical engineers and computer engineers that have been through an engineering degree. The raw skill

set you need is rarer and more expensive. Whereas with IT services and software in New Zealand – yes, it

draws on computer science degrees and post-graduate degrees. And some of the really clever software

has been developed by people with PhDs. But there are also a lot of really good web businesses or mobile

app businesses that are being built by people who have had short course training in web development and

mobile app development. And some people are self-taught.


• The best guesstimate is that we will need twice as many people working in the technology industry – broadly

defined – as we have today. The biggest bottleneck is the scarcity of people. These are not just IT

occupations, but a whole range of skills such as project managers, marketers, sales people, administrators

and business analysts. These people don‟t all need a degree in computer science. They can come from any

industry, from insurance or banking.

– CE, industry body

• I‟ve been in the IT sector for 30 years, and its been the same for thirty years, It always takes time to find good

people. And if it didn‟t, then they probably wouldn‟t be good. Do I think we need more of them? I don‟t

think the issue is quite as bad for us as it is for the very large corporates, in that they have huge numbers of

people to deal with. Whereas we are more focused on highly specialist type skills.


50

Investment in expansion and R&D Nearly half of computer system design firms invested in expansion in 2012; a third also

invested in R&D

Investment in expansion and R&D vs NZ average*

% firms; 2012

*Note: Total survey sample is 35,976 firms with six or more employee; 600 of these firms are in computer system design.


47%

33%

4%

30%

26%

8%

2%

6%

Businesses that invested in

expansion

Businesses that undertook R&D Less than 50% in-house More than 50% in-house

Computer System Design NZ average

30% of firms that

performed the

majority of their

R&D in-house.

$759 $754

$930

$1,106

$542

$728

$877

$588

$296 $319

$286

$335

2009 2010 2011 2012

Average R&D expenditure

The computer system design sector is significantly increasing investment in R&D

Average R&D expenditure*

NZ$000; 2009–2012

*Note: Total survey sample is 35,976 firms with six or more employee; 600 of the surveyed firms are in computer system design.

Source, Statistics NZ, Business Operations Survey, 2012 52

CAGR

11–12

ABS

09–12 CAGR

09–12

Computer system

design

NZ average

Telecommunications

18.9% +$347 13.4%

-33% +$46 2.8%

17.1% +$39 4.2%

Average R&D expenditure is

that reported by those firms

in the Business Operations

Survey.*

6%

9%

11%

16%

23%

26%

30%

39%

49%

56%

56%

62%

80%

89%

6%

10%

9%

27%

22%

46%

41%

30%

41%

43%

42%

48%

56%

70%

Crown research institutes, other research institutes, or research…

Government agencies

Universities or polytechnics

Industry or employer organisations

Business from other industries

Suppliers

Professional advisors, consultants, banks or accountants

Other businesses from within the business group

Conferences

Books, journals, patent disclosures or Internet

Competitors and other businesses from the same industry

New staff

Customers

Existing staff

NZ average Computer systems design

Source of ideas for innovation Staff, customers, competitors, and formal and informal business networks are the key

sources of ideas for innovation

Sources of ideas or information for innovation*

% of firms reporting each source; 2011


Source: Statistics New Zealand, customised data drawn from the Business Operations Survey (2011) 53

Staff and customers

significantly above NZ

average.

Will not total to 100%, as

respondents able to

tick multiple sources.

4%

14%

2%

41%

4%

4%

13%

1%

4%

1%

5%

0.4%

1%

5%

10%

23%

1%

27%

3%

2%

14%

3%

3%

1%

5%

3%

1%

4%

Food, Beverage & Tobacco

Pharmaceuticals, Biotechnology & Life Sciences

Commercial Services & Supplies

Software and Services

Capital Goods

Consumer Durables & Apparel

Technology Hardware & Equipment

Diversified Financials

Consumer Services

Semiconductors & Semiconductors Equipment

Materials

Energy

Media

Health Care Equipment & Services

As a % of total value As a % of total deals

Early stage investment Software and services start-ups are attracting investment

Early stage investment, value and number of deals by industry

% deals and value; 2012

Source: NZVIF, Young Company Finance Report, 2012 54

In 2012 software & services attracted 27% of the

total funds invested, and 41% of all early stage

investment deals. A high number of deals

compared to value indicates lower capital

requirements for IT start-ups.

It is assumed that most of these firms are

classified as computer system design.

Energy, 2%

2% Food /

beverage,

3%

Media /

comms, 7%

Technology,

12%

Other /

undiscolsed,

14%

IT / software,

21%

Health /

biosciences

38%

Manufacturing

Venture and early stage investment IT and software firms have attracted 21% of New Zealand’s venture and early stage

investment since 2003; 2006 and 2011 are stand-out years

Venture and early stage investment by category

%, 2003–2012

Venture and early stage investment in IT and software firms

NZ$000; 2003–2012

Source: New Zealand Venture Capital Association and Ernst and Young, The New Zealand Private Equity & Venture Capital Survey, 2012 55

$12,018

$10,570 $10,365

$23,995

$3,501

$10,325

$11,679

$5,250

$22,688

$10,155

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Total=$577m

It is assumed that most

of these firms are

classified as computer

system design.

This survey is not

representative of total

investment in all sectors in

the economy, e.g. over a

billion dollars is ear-marked

for investment in infant

formula.

Financial performance Firms in computer system design generate a good margin and a high return on equity

Surplus per employee

NZ$; 2009–2011

Return on equity

%; 2009–2011

Source: Statistics New Zealand, Annual Enterprise Survey (2012) 56

$33,300

$28,100 $28,300

$20,200

$27,500

$24,000

2009 2010 2011


69.7%

49.4% 52.0%

6.2% 7.9% 6.6%

2009 2010 2011


Financial performance Income per employee is below the New Zealand average, but showing marginal

improvement

Debt ratio (total liabilities divided by total assets)

%; 2009–2011

Total income per employee

NZ$; 2009–2011

Source: Statistics New Zealand, Annual Enterprise Survey (2012) 57

68%

62%

66% 65% 64% 64%

2009 2010 2011


$252,400 $253,400

$272,600

$302,900 $299,700 $311,600

2009 2010 2011


Strong international connections Foreign investment in computer system design and outward investment by NZ-owned firms

in this sector is significantly higher than NZ average

Computer system design firms with overseas ownership vs NZ

average*

% firms; 2012

Computer system design firms with overseas holdings vs NZ average*

% firms; 2012



21%

6%

8%

1%

Computer systems design NZ average

more than 50% foreign owned less than 50% foreign owned

29%

7%

22%

4%

2%

14%

4% 4%

1% 1% 2%

1%

Businesses

with overseas

holdings

Joint venture Acquisition of

existing

overseas

business

Greenfield Other

method

Compter system design NZ average

Method of gaining overseas

ownership or shareholding

Likely to be sales and support offices as well as

some development activities. Reflects need

to be in-market to sell and support complex

products and services.

Industry comment: foreign investment

• I think that one thing you could consider for the next report is some analysis of the value that acquisitions

have on the local economy. There seems to be a school of thought that the acquisition of a local company

by a foreign multi-national is a bad thing and that jobs will be lost offshore. Whilst that may be the case in

the short term, the return on investment to investors and path to “liquidity events” for start-ups is invaluable

and should not be under estimated. Israel is a very good example of this and they focused on their

economy being an “incubator” for ICT companies.


59

Exports

There are two commercial services export categories which clearly relate to IT services

Category Definition

Computer and information services Computer and information services cover computer data and news-related services between residents and non-

residents.

Computer services cover transactions involved with systems analysis, programming and maintenance, computer-related consultancy, the maintenance and repair of computer hardware, data entry, processing, outsourcing

and facilities management and systems integration. Excluded are royalties and licence fees for computer

software, the leasing of computer hardware and the export or import of computer hardware.

Information services cover transactions involved with the provision of news, photographs and direct non-bulk

subscriptions to newspapers and periodicals. Also included are database services, conception, data storage and

the dissemination of data, both online and through magnetic media.

Royalties and licence fees Royalties and licence fees cover payments and receipts between residents and non-residents for the authorised

use of intangible, non-produced, non-financial assets and proprietary rights (e.g. patents, copyrights, trademarks,

industrial processes, franchises) and the use, through licensing agreements, of produced originals or prototypes

(e.g. manuscripts, films). Included in this category are software royalties and fees for the distribution rights to

television, radio and film. The IMF treats distribution rights to television, radio and film as being part of personal,

cultural and recreational services, while New Zealand treats them as part of royalties and licence fees.

The following analysis includes royalties and licence fees from software only.

Comment

When exports were just about shipping frozen lamb or bags of milk powder

on ships, determining their value was a simple matter. Determining the true

value to the New Zealand economy of firms such as Xero or Diligent Board

Member Services in terms of export income, value creation and profits from

overseas subsidiaries is a complex matter and beyond the scope of this

report.

Instead it is assumed that the above two categories are representative of

the export performance of the sector. It is possible, however, that the data

understates the true value.

Source: Statistics NZ: Balance of Payments Sources and Methods, 2004. 60

Trade balance: royalties and licence fees received for software New Zealand pays twice as much in royalties and licence fees for imported software as it

receives from exported software

Source: Statistics NZ: Balance of Payments 61

$88 $106 $105 $112 $117

$157 $132

$171 $174 $169 $173 $205

$260 $267

2006 2007 2008 2009 2010 2011 2012

Exports Imports

Royalties and licence fees received for software; exports versus imports

NZ$m; 2006–2012

CAGR

06–12

7%

7.7%

June years

Deficit in 2012

= $135m.

Imports twice that of

exports.

Trade balance: computer and information services Exports of computer and information services have grown faster than imports

Computer and information services: exports versus imports

NZ$m; 2006–2012


$288 $312 $353 $405 $444

$504 $531

$401 $420 $505

$576 $529 $623 $649

2006 2007 2008 2009 2010 2011 2012

Exports ImportsCAGR

06–12

11%

8%

June years

Deficit in 2012

= $118m.

Royalties and

license fees

for computer

services $50. $67. $73. $62. $80. $102. $102. $113. $113.

$150. $141.

$214.

$256. $221. $265.

$277.

$315. $333.

$403. $412.

$508. $518.

$264

$323

$294

$327

$357

$417 $435

$516 $525

$658 $659

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Export growth Exports of IT services have grown at 10% per annum since 2002, driven by computer and

information services

IT services exports by category

NZ$m; 2002–2012


Total

CAGR

11–12

ABS

06–12

CAGR

02–12

0.2% +395 10%

2% +304 9%

-6% +91 11%

Computer

and

information

services

March years

Australia 35%

US/Canada

26%

UK

8%

Rest of

Europe

2%

Asia 2%

Other 27%

Export markets

Traditional (typically English speaking) markets account for 69% of exports

IT services exports by market

% market; 2012

IT services exports by market

NZ$m; 2012


$176

$14

$16

$54

$171

$232

Other

Asia

Rest of Europe

UK

US/Canada

Australia

Total = $663m (2012)

Relatively large other

category indicates a

large number of small

markets.

June years

69%

Export growth by market Australia, US/Canada and ‘other’ have driven export growth

IT services exports by major market

NZ$m; 2006 & 2012


$94

$232

$114

$171

$47

$54

$5

$16

$21

$14

$95

$176

2006 2012

Other

Asia Rest of Europe

UK

US/Canada

Australia

% Growth

2012 vs 2006

ABS

2006–12

+81m 85%

-7m -33% +11m 220%

+7m 15%

+57m 50%

+138m 147%

$663

$376

Barriers to exporting for existing exporters Access to finance and distance are the top barriers; exchange rate is less of a barrier than

for other sectors

Number of exporting firms reporting the following factors as barrier to exporting

% exporting firms; 2011

Source: Statistics NZ: Business Operations Survey, 2011 66

30% 30%

27% 26%

25%

15%

32%

43%

17%

24%

32% 32%

37%

21%

18%

Limited access to finance Distance from markets Exchange rate volatility Other Limited experience in

expanding beyond NZ

Computer systems design High technology manufacturing All sectors

Weightless exports Weightless exports are not costless; firms exporting software and services typically need a

presence close to customers

Firm & revenue Overseas offices / representation

Orion Healthcare

(Revenue: $100m est)

North America, 5; Asia-Pacific (excluding NZ), 6; Europe/UK, 3;

Middle East, 1

Xero

(Revenue: $40m est)

Melbourne, Brisbane, San Francisco, Milton Keynes

SLI Systems

(Revenue $16m est)

Melbourne, London, San Jose

Wherescape

(Revenue, $15m est)

Oregon, USA. Reading, UK

Diligent Board Member Services

(Revenue: $44m est)

United States, United Kingdom, Australia, Singapore, Canada,

the Netherlands and Hong Kong

Information Tools

(Revenue, $27m est)

UK, USA, Argentina, Sweden, Bangladesh, Netherlands, Belgium, Ireland, Germany, Japan, South

Africa, Australia (some of these may be in-market partners)

BankLink

(Revenue, $42m est)

Sydney, London

Pingar

(Revenue, $4m est)

California, UK, India, Hong Kong

Overseas offices: selected IT product firms

Source: various websites 67

Weightless exports: industry comment

• Our market basically is completely off-shore. Ninety per cent of our revenue is from the US, but we do have

customers in Europe and are chasing a few in Asia. Our chief executive has spent most of the last three

years in the US. You have to educate the market on how to use our product. You‟ve got to be there to get

wins. You can‟t do that remotely. It‟s only really in the last six months that we‟ve got the funding to start

building the team on the ground there.

– Executive, small IT product business

• „Weightless‟ is a bit of a misnomer. There is a substantial cost overseas incurred in delivering your products

and services to customers. Yes, you don‟t have to pay for a ship. But you can‟t sit in New Zealand and sell

and support your products entirely over the Internet. Delivering software over the Internet is weightless, but it

would be very rare that that was all that was involved. Normally you have to have people conducting sales

in market and providing after-sales support and maintenance. Customisation, though, can be brought back

to New Zealand.


• I don‟t see in any way that people are going to value knowledge less in years to come. And I don‟t see any

way that new technologies are going to eliminate the incredible value of being right there… there is a huge

amount of evidence to suggest that in many cases face to face contact and electronic technologies are

compliments rather than substitutes. If you look at actually when people call each other, they are more likely

to call each other if they are physically close to each other. The most famous example of geographic

concentration in the world today is the highest tech industry with the biggest ability to actually connect

electronically – Silicon Valley. So its very hard to make a case from the evidence that e-technologies are

going to make in any sense face-to-face contact obsolete, and there are a lot of things to suggest it‟s going

to create a more interactive, more urban world.

– Edward Glaeser, Fred and Eleanor Glimp Professor at the Department of Economics, Harvard

University, London Schools of Economics Public Lecture podcast, 14 March 2011

68

TELECOMMUNICATIONS

69

Telecommunications Telecommunications is made up of five sub-sectors covering a range of activities (e.g.

wired versus mobile networks)

70

Sub-sector Description ANZSIC code Example firms

Wired

telecommunications

network operation

Firms engaged in:

• international telephone network operation (wired)

• local telephone network operation (wired)

• long distance telephone network operation (wired)

• telecommunications network operation (wired)

J5801 Chorus

Other

telecommunications

network operation

Firms engaged in:

• mobile telecommunications network operation

• satellite telecommunications network operation

• wireless telecommunications network operation

J5802 2Degrees

Other

telecommunications

services

Firms engaged in providing a range of other telecommunication services

such as paging services and other specialised telecommunications

applications. Also included are telecommunications resellers purchasing

access and network capacity from telecommunication carriers

J5809 Callplus

Internet service

providers and web

search portals

Firms engaged in providing internet access services. Also included are firms

which provide web search portals used to search the Internet

J5910 Inspire.net

Telecommunication

goods wholesaling

Firms mainly engaged in wholesaling telecommunication goods, e.g. mobile

phones; communications equipment, electric cable ducting systems,

telephone accessories etc

F3493 Atrax Group

Telecommunications: example firms The sector is dominated by a few large companies with a number of smaller providers

Brief profile of selected firms in the telecommunications sector

2012 or as available

Source: * from 2012 annual report . **Kompass estimate 71

Firms Revenue Number of employees Ownership Description

Telecom $4,576m* 6948 Listed (NZX) Full range of telecommunications services

Vodafone $1620m* 1938 Listed (LSE;

NASDAQ)

Full range of telecommunications services

Chorus $613m

(7 months)*

2500 Listed (NZX) Own and manage the local telephone

exchanges, cabinets and copper and fibre

cables

Kordia $399m* 784 NZ Government Broadcasting transmission and

telecommunications services

Alcatel-Lucent $236m** 600 Listed (Euronext;

NYSE)

Provider of telecommunications solutions and

equipment

2Degrees $185m 300 NZ/Foreign Mobile telecommunications

Citylink $8.2m** 32 NZ private Telecommunications services and broadband

connectivity

Farmside $21m (est) 80 NZ private Satellite telecommunications network operator

145 195

245 246 233 217 216 228 229 233 228

145

152

170 182 177

171 166 168 183 184 180 36

36

33 28 21

27 29 26 35 46 50

85

89

92 74 67

56 52 54 55

55 56

86

96

99 105 111

106 122 128

151 172 162

497

568

639 635 609

577 585 604

653

690 676

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Telecommunications: number of firms by sub-sector The number of telecommunications firms is growing, apart from ‘wired telecommunication

network operation’

Number of telecommunications firms by sub-sector

Firms; 2002–2012

Source: Statistics New Zealand Business Demographics database

Growth in ‘other

services’ likely to be

driven by innovative

services / resellers

72

Telco goods wholesaling

Other telco network operation

Other telco services

Internet service providers

Total

Wired telco network operation

CAGR

11–12

ABS

02–12

CAGR

02–12

-5.8%

-2.2%

+14

+35

1.8% -29

6.5%

3.3%

2.2%

-4.1%

-2.1% +83 4.6%

8.7%

+76

-2.0% +179 3.1%

Note: excludes firms with no employees

Telecommunications: number of employees by sub-sector Following four years of no growth, employment grew in 2012 driven by ‘other

telecommunications network operation’

Number of telecommunications employees by sub-sector


Note: Statistics New Zealand Business Demographics database (excludes department stores) 73

Telco goods wholesaling

Other telco network operation

Other telco services

ISPs

Total

Wired telco network operation

CAGR

11–12

ABS

02–12

CAGR

02–12

690 790 770 660 770 740 830 660 730 790 820

1,420 1,080 1,340 1,720 1,830 1,720 1,910 2,070 1,910 1,910 1,840

1,980 1,870

2,120 2,420

2,620 2,590 2,160 2,260 2,270 2,540 3,200

6,200

5,510 5,690

6,280

6,710 7,700

8,780 8,480 8,290 8,100

8,360 380

380 260

190

170

170

200 460 630 690

760

10,670

9,630 10,180

11,270

12,100

12,920

13,880 13,930 13,830 14,030

14,980

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

10.1%

-3.7%

+1,220

+420

3.2% +2,160

7.2%

4.9%

2.6%

3.0%

3.8% +130 1.7%

26.0%

+380

6.8% +4,310 3.5%

12.8%

138

168 192

178 154 150 157 155

179 200 194

40

49

42

38

41 35

36 40

44

43 41

36

36

38

37

29 32

36 29

31

32 29

30

26

24

23

26 20

21 20

17

18 24

3

5

8

6

7 8

9 9

11

11 10

10

8

7

10

12 12

11 11

10

10 12

257

292

311

292

269 257

270 264

292

314 310

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Telecommunications: number of firms by size The number of large firms has remained stable for a decade, with growth in firm numbers

driven by small firms

Number of telecommunications sector firms by size

Firms; 2002–2012

Source: Statistics New Zealand Business Demographics database 74

10–19

20–49

50–99 100+

-9.1%

-9.4%

-6

-7

20.0% +2

-2.2%

-2.1%

1.8%

6–9 -4.7% +1 0.2%

1–5 -3.0% +56 3.5%

33.3%

CAGR

11–12

ABS

02–12

CAGR

02–12

Total -1.3% +53 1.9%

Note: excludes firms with no employees

7

-2.4%

-1.9% -11.6% +10 0.0% 0.3%

Telecommunications: employment by firm size Large firms account for three-quarters of employment and have driven employment

growth

Number of telecommunications sector employees by firm size


Note: Statistics New Zealand Business Demographics database (excludes department stores) 75

340 380 470 420 370 370 350 370 410 420 410 290 350 300 280 300 240 260 280 310 300 300 460 480 510 510 380 430 470 400 450 430 380

980 830 750 760 790 620 620 640 500 560 740

190 280 570 430 460 530 580 550 770 760 730

8,430 7,300

7,570 8,890

9,780 10,750

11,590 11,700 11,400 11,580 12,440

10,670

9,620 10,180

11,280

12,100

12,930

13,880 13,930 13,830 14,050

14,980

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

10–19 20–49

50–99

100+

-3.9%

-240 -80

7.4% +4,010

14.4%

-2.8%

4.0%

6–9 1–5 +70 1.9%

32.1%

+540

CAGR

11–12

ABS

02–12

CAGR

02–12

Total 6.6% +4,310 3.5%

THE DIGITAL ECONOMY

77

Moore’s Law Computing power is growing at an exponential rate

Microprocessor transistor counts 1971–2011

Number of transistors

Source (chart): Wgsimon, "Transistor Count and Moore's Law - 2011.svg" via Wikipedia used under a Creative Commons Attribution-ShareAlike license: http://creativecommons.org/licenses/by-sa/3.0/ 78

iPhone 1 (2007): 620MHz

ARM CPU, 128 megabytes

of memory.

iPhone 5 (2012): 1,300 MHz

dual core CPU (2x iPhone1)

with a gigabyte of RAM (8x

iPhone 1).

Named after Intel founder

Gordon E Moore, Moore's

Law is the observation that

over the history of

computing hardware, the

number of transistors on

integrated circuits doubles

approximately every two

years. The effect of this is

that computing

performance is improving

exponentially.

Impact of Moore’s Law New applications are driving disruptive change in social and economic activities

• Computer power is getting bigger and cheaper at rates that are really hard to wrap your mind around. Moore‟s Law says

that computing power essentially doubles every 18 to 24 months, and you think „I can get my mind around doubling‟.

When you do that 10, 20 times, our minds can‟t picture that kind of exponential growth…. What‟s different now is that

each doubling is on a much larger base than before… A huge underappreciated force and one that‟s getting bigger all

the time… is the astonishing abilities that computers and robots are now demonstrating, that were the stuff of science

fiction even 10 years ago.

– Andrew McAfee, Principal Research Scientist, MIT Centre for Digital Business, interview on GlobalBiz, BBC podcast,

30 March 2013

• In 2004 we used to teach a book that had a set of technologies that humans could do well and a set of technologies

that machines could do well. The canonical example they gave, that humans could do well and machines could not,

was driving a truck. There was just too much real time information coming in. There are no formal rules…. I was teaching

my students as recently as 2005 that that was something machines just weren‟t going to be able to do anytime soon.

– Andrew McAfee, Principle Research Scientist, MIT Centre for Digital Business, interview on GlobalBiz, BBC podcast,

30 March 2013

• With digitisation, the change that can happen in all industries is massive…. We have a rare transition happening right

now. Not all generations get to live through a radical transformation. Most get to optimise current assumptions. And I

believe the biggest challenge for management is that you need to radically challenge existing assumptions, because

otherwise what you are doing is creating incremental improvement. And if you see what happened to the music industry,

and if you see what‟s happening in the other extreme, in mining, these are not incremental. These are pretty radical

adjustments to business models.

– Jim Hagemann Snabe, co-Chief Executive, SAP, London School of Economics Public Lecture, 21 February 2013

• Part of the technology change related to microprocessor transistor counts, is the move to multicore and parallel

processing. This involves a radical paradigm shift in software engineering for computer intensive applications (a rapidly

growing area with image, sound and signal processing in particular, and now reaching handheld computing); this has

major implications for computer programming education.

– New Zealand ICT industry specialist, 2013

79

The digital economy

ICT is driving change in every sector, as these examples show; arguably ‘every company is

now a software company’*

Sector Firm Examples

Food and beverage Fonterra • Fonterra’s online auction Global Dairy Trade platform is changing the nature of price discovery.

• Fonterra’s Crawford Street facility includes a high-tech cool store with automated stacking

robots.

Mining Rio Tinto • Rio Tinto is to become the owner of the world's largest fleet of driverless trucks after it signed a

deal to buy at least 150 from Komatsu Limited over the next four years... These 150 new trucks will

work with our pioneering Operations Centre that integrates and manages the logistics of 14

mines, three ports and two railways. – Rio Tinto website

Manufacturing and

services converging

Tait Communications • Tait Communications reports that services now account for 25% of sales from services. Software is

embedded in products.

• We are still fixated on this manufacturing versus services distinction, and if you look at what

manufacturing does… it does these designs, it writes this software, it invests in these new business

processes. All of which you might regard as service activity . The boundaries between these two

industry activities are getting very blurred. – Jonathan Haskel, Professor of Economics at Imperial

College Business School, London, interview on Peter Day’s In Business, BBC podcast, 4 April, 2013

Media TVNZ

Sky TV

• The popularity of TVNZ Ondemand continues to go from strength to strength with video streams

up a massive 41 per cent year-on-year in 2012. In 2012 the most watched programme on TVNZ

Ondemand was home-grown soap Shortland Street, achieving more than 4.9 million streams.

– press release, TVNZ, 26 February 2013

• Coliseum Sports Media is set to deliver to New Zealanders all 380 games of the English football

Premier League via an online platform after out-bidding Sky TV for the rights.

Retailing All retailers • A Roy Morgan poll found that 65 per cent of people over 14 bought something online in

December 2012 – nzherald.co.nz, 4 April 2013.

• Online sales are changing retailing. The Internet has revolutionised completely everything… retail

has got to become a really sophisticated animal. – retired fashion designer Ashley Fogel, Radio NZ

interview, 2012

Agriculture Re Gen Ltd • Re Gen technology takes farm level data on key variables such as rainfall and soil and

continuously sends this information through the Internet to a central database. The Re Gen

solution synthesises thousands of individual measurements, best practice guidelines, regional

council regulations and farm-specific limitations into a simple daily text message, providing a

recommendation to the farmer to guide effluent irrigation. – www.regnerated.co.nz

*Source: David Kirkpatrick: Now Every Company is a Software Company, 30 November, 2011. Available at www.forbes.com

80

ICT occupations There are 18 occupations classified as ICT; many ICT workers are employed in other sectors

in the economy

ICT occupations

• ICT Managers • Computer Network Professionals

• ICT Trainers • ICT Support and Test Engineers

• ICT Sales Professionals • Telecommunications Engineering Professionals

• Web Designers • Electronic Engineering Draftspersons, Technicians

• Electronics Engineers • ICT Support Technicians

• ICT Business and Systems Analysts • Telecommunications Technical Specialists

• Multimedia Specialists and Web Developers • Electronics Trades Workers

• Software and Applications Programmers • Telecommunications Trades Workers

• Database & Systems Administrators & ICT Security • ICT Sales Assistants

Source: Employment estimates, MBIE 81

162

431

472

606

669

1,053

1,159

1,360

1,862

1,942

2,020

2,705

3,262

3,444

4,518

4,662

4,938

5,858

21,129

Petroleum & minerals

Accommodation & restaurants

Agriculture, forestry & fishing

Property, rental & hiring services

Arts & recreation

Utilities

Logistics

Administrative & support services

Retail trade

Health

Other services

Financial & insurance

Construction

Wholesale trade

Education

All manufacturing

Media & telecommunications

Government, defence & public…

Professional services

53

225

299

305

404

615

869

1,215

1,474

1,614

2,270

2,627

3,333

3,384

4,175

4,256

4,315

4,322

15,313



Arts & recreation



Utilities

Logistics

Health

Retail trade


Other services


Education

Construction

Wholesale trade

All manufacturing




Total ICT workers by New Zealand sector, 2003 versus 2012 The economy has added 11,184 workers in ICT occupations since 2003; a third are

employed in the professional services sector

Number of workers in ICT occupations by sector

ICT workers; 2003

Number of workers in ICT occupations by sector

ICT workers; 2012

Source: Detailed Employment Estimates, MBIE analysis, calculated from the Household Labour Force Survey and the Linked Employer-Employee Data and historical censuses. 82

Total ICT workers

in 2012 = 62,252

+11,184.

Total ICT workers

in 2003 = 51,068.

Includes the

computer system

design sub-sector.

Absolute change in ICT jobs by sector, 2003–2012

The professional services sector accounted for 52% of growth in ICT jobs; wholesale trade

reduced its ICT workforce

Absolute change in number of workers in ICT occupations by sector

ICT workers; 2003–2012


-731

-254

-250

-122

78

109

167

202

206

290

370

388

406

438

623

727

1,185

1,536

5,816

Wholesale trade


Other services

Construction






Logistics

Arts & recreation

Retail trade

All manufacturing

Utilities


Health

Education

Government, defence & public safety


These jobs may have

been outsourced to

firms in professional

services, such as

Datacom or Fujitsu.

52% of job

growth since

2003.

C

0.3%

0.4%

0.9%

0.9%

1.4%

1.5%

1.9%

2.1%

2.2%

2.5%

2.7%

2.8%

3.0%

3.4%

4.7%

4.7%

7.0%

14.8%

16.6%



Health

Retail trade

Logistics


Arts & recreation

All manufacturing



Education

Construction

Other services

Wholesale trade



Utilities



-1.0%

-1.0%

-0.9%

-0.7%

-0.7%

0.1%

0.2%

0.2%

0.2%

0.3%

0.3%

0.3%

0.4%

0.4%

0.5%

0.9%

1.0%

1.0%

4.1%

Construction

Wholesale trade

Other services





Retail trade

Health

Utilities


Logistics

Education

All manufacturing


Arts & recreation



Media & telecommunications C

ICT workers as a percentage of total sector workforce Professional services is the most ICT job intensive sector; proportion of ICT jobs in media and

telecommunications increased by 4%

ICT workers as a % of total sector workforce

% ICT workers; 2012

Change in ICT workers as a % of total sector workforce

% ICT workers; 2003–2012


2.1% of

manufacturing jobs

are in ICT occupations

Services exports attributed

to the ICT sector

(OECD definition)

$1,119m

Goods exports

attributed to ICT sector

(OECD definition)

$731m

Computer services exports

from other sectors

$140m

Communications services

exports from other sectors

$74m

Software exports from

other sectors

$9m

Digital economy exports Exports attributed to the digital economy are between $1 and $2b, depending on the

definition

Digital economy exports by ICT sector and all other sectors

Exports, NZ$m, 2012

Source: Statistics NZ; MBIE analysis 85

Total exports = $2,073m

Treat as illustrative

Includes goods exports from those

high technology firms also classified

as ICT manufacturers.

Includes communications exports.

Excludes some categories that

may include revenues derived from

digital products, e.g. royalties.

Many non-IT firms may export IT

services or software, e.g. manufacturers (Framecad and Tait

Communications are examples).

This total double counts exports

from other sectors, so is not

additional.

In terms of the digitisation of

economic activities, all exports will

be ICT enabled in one form or another, e.g. through RFID tags,

tracking, logistics, electronic

payments systems.

APPENDIX glossary, terms, definitions, sources and

limitations

87

Glossary of terms This report uses the following acronyms and abbreviations

A$/AUD Australian dollar NZ New Zealand

ABS Absolute n/a Not available/not applicable/no data

ANZSIC Australia and New Zealand Standard Industry

Classification NZ$/NZD New Zealand dollar

AR Annual report Oceania NZ, Australia & Pacific Islands

ASEAN Association of Southeast Asian Nations RoE Return on equity

AU Australia R&D Research & Development

Australasia Australia and New Zealand S Asia South Asia (Indian sub-continent)

b Billion SE Asia South East Asia

CAGR Compound annual growth rate SOE State Owned Enterprise

C/S America Central and South America (Latin America) T/O Turnover

CRI Crown Research Institute US/USA United States of America

CY Calendar years US$/USD United States Dollar

E. Asia East Asia UK United Kingdom

EBITDA Earnings before interest, tax, depreciation and

amortisation YE Year ending

FTE Full-time equivalent YTD Year to date

FY Financial year

GFC Global financial crisis

JV Joint venture

m Million

89

Applying the OECD’s definition, the four industries below are classified as part

of the ICT sector.

Note: how statisticians define the industry and how the industry sees itself

may be very different.

ICT definition OECD definition for information and communications technology (ICT)

*Australia & New Zealand Standard Industrial Classification 2006 (ANZSIC).

Source: Statistics NZ; OECD definitions (ISIC 3.1 version)

90

The OECD definition includes telecommunications goods and services, but

excludes internet publishing and broadcasting. The ICT sector is defined as:

• goods and services which enable the function of information processing

and communication by electronic means including transmission and

display

• goods which use electronic processing to detect, measure and/or

record physical phenomena or control a physical process.

ANZSIC code* Description New Zealand examples

Telecommunications

J580100 Wired telecommunications network operation Chorus

J580200 Other telecommunications network operation 2Degrees

J580900 Other telecommunications services CallPlus

J591000 Internet service providers and web search portals Inspire.net

F349300 Telecommunication goods wholesaling Atlas Gentech

IT services (software and computer services)

L663900 Other goods and equipment rental and hiring not elsewhere classified Vidcom New Zealand

M700000 Computer system design and related services Orion Health

J542000 Software publishing Pingar

J592100 Data processing and web hosting services Revera

J592200 Electronic information storage services Paymark

S942200 Electronic (except domestic appliance) and precision equipment repair and maintenance Kinetics Group Ltd

ICT manufacturing

C242100 Computer and electronic office equipment manufacturing Smartrak

C243100 Electric cable and wire manufacturing General Cable Superconductors

C242900 Other electronic equipment manufacturing Rakon

C242200 Communication equipment manufacturing Tait Communications

C241900 Other professional and scientific equipment manufacturing Atrak Group

IT wholesaling (Mainly importers, equipment providers)

Computer system design definition This report uses the Australian and New Zealand Standard Industrial Classifications

(ANZSIC)* definition of computer system design

91

Caveat

For the purposes of this report it is assumed that software-as-a-service

businesses (for example) are captured in this classification. In any case, as

the largest IT subsector, it is assumed that the data is representative of the

structure and dynamics of New Zealand’s cohort of IT firms.

Formal name: Computer system design and related services

ANZSIC code: M7000

This classification captures enterprises mainly engaged in providing

expertise in the field of information technologies such as writing, modifying,

testing or supporting software to meet the needs of a particular consumer;

or planning and designing computer systems that integrate computer

hardware, software and communication technologies.

*ANZSIC is the system used by the statistical departments of Australia and New Zealand when measuring the sectors of the economy.

Primary activities

• Computer hardware consulting service

• Computer programming service

• Computer software consulting service

• Internet and web design consulting service

• Software development (customised) service (except publishing)

• Software installation service

• Systems analysis service

Exclusions

The following activities are not included in this classification:

• mass producing computer software (included in Class 1620 Reproduction

of Recorded Media)

• easing or hiring electronic computers or other data processing equipment

(included in Class 6639 Other Goods and Equipment Rental and Hiring not

elsewhere specified)

• computer software publishing (included in Class 5420 Software Publishing)

• providing data processing services or computer data storage and

retrieval services (included in the appropriate classes of Group 592 Data

Processing, Web Hosting and Electronic Information Storage Services).

Terms and definitions The report uses the following economic metrics

Term Definition Comment

Nominal GDP

(gross domestic product)

The value of goods and services produced in New Zealand, after

deducting the cost of goods and services used in the production

process. ‘Nominal’ means not adjusted for inflation.

Cross-cutting sectors (excluding tourism) Value added has been used to provide

indicative estimates. These have not been

verified through the System of National Accounts.

Real GDP

(gross domestic product)

GDP adjusted to remove the effect of price changes/inflation to

show the change in the volume of goods and services produced in

New Zealand. In this report, it is expressed in constant 2010 prices.

Cross-cutting sectors (excluding tourism) Data not available.

Goods exports The value of goods of domestic origin (excluding re-exports)

exported from New Zealand to another country.

Note: sector exports values will exclude items suppressed in

accordance with Statistics NZ's confidentiality policy. Exclusions are

noted where applicable.

All sectors: Merchandise (goods) exports have

been obtained by matching commodities to the

ANZSIC06 industry that characteristically

produces them (Statistics NZ custom job).

Employment The number of people who earned money from employment (wages

and salary earners) and/or self-employment. For tourism it is full-time

equivalent (FTE) employees producing goods and services sold

directly to tourists.

Cross-cutting sectors (excluding tourism) Statistics NZ, Linked Employee Employer

Database (LEED), ( custom job).

Tourism Direct employment in tourism (FTEs) and

employment (FTEs) in tourism as a % of total.

Productivity A measure of how efficiently inputs are used within the economy to

produce outputs. Productivity is calculated by dividing the sector’s

real GDP by the number of hours paid. Real GDP per hour paid is

used.

For the cross-cutting sectors nominal GDP per employee is

substituted.

Cross-cutting sectors (excluding tourism) For cross-cutting sectors real GDP is replaced by

nominal GDP, and hours paid is replaced by

number of employees; hence calculation is

nominal GDP by number of employees.

Investment in fixed assets

(gross fixed capital formation)

A measure of the outlays of producers on durable fixed assets (e.g.

buildings, vehicles, plant and machinery, hydro-electric construction,

roading and improvements to land). 'Gross' indicates that consumption

of fixed capital is not deducted from the value of the outlays.

Cross-cutting sectors (excluding tourism) Uses additions less disposals of fixed assets, (custom

job). Note: this data has not been through the

System of National Accounts, so is indicative only.

Number of firms

(number of enterprises)

The number of businesses or service entities operating in the sector in

New Zealand. It covers all types of business or service entities, including

companies, self-employed individuals, voluntary organisations and

government departments.

Cross-cutting sectors (excluding tourism) Uses customised Business Demography Statistics,

number of enterprises.

92

Terms and definitions The report uses the following financial metrics

Term Definition Comment

Total income per firm Total income of all firms in sector divided by the number of firms in the

sector. Income includes sales, interest, dividends, donations,

government funding, grants and subsidies, and non-operating

income.

Cross-cutting sectors (excluding tourism) Statistics NZ, Annual Enterprise Survey statistics,

custom job.

Total income per employee: Total income of all firms in sector divided by rolling mean

employment. Total income includes sales, interest, dividends,

donations, government funding, grants and subsidies, and non-

operating income.


custom job.

Surplus per employee: Surplus before income tax of all firms in sector divided by rolling mean

employment.


custom job.

Return on equity Surplus before income tax divided by shareholders' funds. Cross-cutting sectors (excluding tourism) Statistics NZ, Annual Enterprise Survey statistics,

custom job.

Capital stock per worker Indicates capital intensity. The capital stock includes fixed assets such

as buildings, roads and machinery, and intangible items such as

software and exploration expenditure, less accumulated

depreciation.


custom job.

Tourism: Capital stock, divided by employment.

Debt ratio Debt ratio equals total liabilities of all firms in sector divided by total

assets of all firms in sector. Cross-cutting sectors (excluding tourism) Statistics NZ, Annual Enterprise Survey statistics,

custom job.

93

Sources: economic data The following sources were used for economic data

Metric Source

Standard ANZSIC sectors

Source

tourism

Source

ICT

Nominal GDP Statistics New Zealand, Infoshare Database,

System of National Accounts 1993, SND,

GDP(P), Nominal, Actual, ANZSIC06 industry

groups (Annual–Mar).

Statistics NZ, Tourism Satellite Account: 2012,

Table 1 Tourism expenditure by component,

Direct tourism value added.

Statistics NZ, Value added estimates from

customised Annual Enterprise Survey tables.

Note: this data has not been through the

System of National Accounts, so is indicative

only.

Real GDP Statistics New Zealand, Infoshare Database,

National Accounts, System of National

Accounts 1993, SND, GDP(P), Chain-volume,

Actual, ANZSIC06 industry groups (Annual– k

Mar). Adjusted so that 2010 real GDP = 2010

Nominal GDP. Does not incorporate revisions

published by Statistics NZ in December 2012.

n/a

Goods exports Statistics NZ, merchandise exports, obtained

by matching commodities to the ANZSIC06

industry that characteristically produces

them. Note: sector exports values will exclude items suppressed in accordance

with Statistics NZ's confidentiality policy. For

more information, see

http://www.stats.govt.nz/about_us/policies-

and-protocols/trade-confidentiality.aspx

Statistics NZ, merchandise exports, obtained

by matching commodities to the ANZSIC06

industry that characteristically produces

them.

94

Sources: economic data continued

Metric Source

standard ANZSIC sectors

Source

Tourism

Source

ICT

Employment Statistics New Zealand, Table Builder, Linked

Employer-Employee Data (LEED) Tables

(annual), Table 1.6: Main Earnings Source by

Industry (NZSIOC).

Statistics NZ, Tourism Satellite Account: 2012,

Table 4, Direct employment in tourism (FTEs)

and Employment (FTEs) in tourism as a

percentage of total. See

http://www.stats.govt.nz/browse_for_stats/in

dustry_sectors/Tourism/tourism-satellite-

account-2012/tourism-employment.aspx for more information on the tourism FTE

measure.

Statistics NZ, LEED custom job.

Productivity Real GDP divided by hours paid. Hours paid

data from Statistics NZ, Infoshare Database,

Productivity Input Series –- Industry Level

(ANZSIC06) (Annual–Mar), Hours, Gross.

Manufacturing hours paid for 2010 split into

manufacturing sub-sectors using QES hours

paid and rated back using productivity

indexes from Statistics NZ.

Substituted nominal GDP per employee. Substituted nominal value

added/employment.

Investment in

fixed assets

Statistics New Zealand, Infoshare database,

System of National Accounts 1993 - SND,

Series, GDP(E), Nominal, Actual, Asset type

(Annual–Mar), Gross Fixed Capital

Formation.

Statistics NZ, Tourism Satellite Account - TSA,

Table: Gross Fixed Capital Formation by

Asset Type and by Industry (ANZSIC06)

(Annual-Mar). NB data only available for

certain years up to 2009.

Statistics NZ, Additions less disposals of fixed

assets from customised Annual Enterprise

Survey tables. Note: this data has not been

through the System of National Accounts, so

is indicative only. The all sector total

excludes some industries – see note page

following.

Number of

firms

Statistics NZ Table Builder, Business

Demography Statistics, Detailed Industry for

Enterprises, number of enterprises.

n/a Customised Business Demography Statistics,

number of enterprises.

95

Sources: financial data The following sources were used for financial data

Metric Source

standard ANZSIC sectors

Source

Tourism

Source

ICT

Surplus per

employee

Statistics NZ, Annual Enterprise Survey

release, surplus per employee count. The all

sector total excludes some industries. See

note below.

n/a Statistics NZ, Customised Annual Enterprise

Survey data, surplus per employee count.

Return on

equity

Statistics NZ, Annual Enterprise Survey

release, return on equity. Total excludes

some industries – see note below.

n/a Statistics NZ, Customised Annual Enterprise

Survey data, return on equity.

Debt ratio Statistics NZ, Annual Enterprise Survey

release, total liabilities (current and other)

divided by total assets. The all sector total

excludes some industries. See note below.

n/a Statistics NZ, customised Annual Enterprise

Survey data, total liabilities (current and

other) divided by total assets.

Capital stock

per worker

Statistics NZ, National Accounts (Industry

Benchmarks): Year ended March 2010, Table

14 Net capital stock by industry, current

prices (replacement cost), 1987–2010,

divided by employment.

Statistics NZ, Tourism Satellite Account,

capital stock, divided by employment. Note:

capital stock data is only available for some

years up to 2009 and does not incorporate

the National Accounts revisions published in

November 2012.

Substituted with fixed assets per worker from

Statistics NZ, Customised Annual Enterprise

Survey data, fixed tangible assets divided by

employment. Note: the fixed assets data

has not been through the system of National

Accounts, so is indicative only. The all sector

total excludes some industries - see note

below.

Note: AES data excludes residential property operators, foreign government representation, religious services, private households employing staff and

superannuation funds.

96

Example firms: sources and limitations

The example firms are sourced form the Kompass database (quoted with

permission) Management Magazine’s top 200 firms (2012) plus various

websites, annual reports and the TIN 100 publication (2012).

Firms allocated to sectors in this report may not match firms included in official statistics. Statistics NZ does not release frim level data. In most cases

numbers employed and turnover quoted for example firms are estimates.

MBIE welcomes corrections to the example firms’ data.

Other sources

Other data sources, such as the Comtrade database, are noted on the

page on which they occur.

Business Operations Survey

The Business Operations Survey collects information on the operations of New

Zealand businesses. This information is used to quantify business behaviour,

capacity, and performance. The survey gives insights into business activities,

barriers and motivations behind New Zealand business operations.

Data from the Business Operations Survey was used to calculate: • barriers to innovation and exporting • rates of innovation and R&D by sector • the rate of outward direct investment and foreign direct investment by

sector • percentage of firms in a sector reporting overseas income

Size of business operations survey

The survey is run annually and typically information is collected from

approximately 36,000 firms operating in New Zealand with six employees or

more.

Customised data for the Sectors Report

Data for the cross-cutting sectors, information and communications

technology, high technology manufacturing, tourism, knowledge intensive

services and some of the manufacturing sectors was provided by Statistics NZ

as a custom job. This data may be below the level the survey is designed for

and so should be treated with caution.

Detailed information on the Business Operations Survey is available from the

www.stats.govt.nz

Business Operations Survey, ‘example’ firms and other sources

97

Services exports

Statistics New Zealand publishes services exports data by service type as part

of its balance of payments statistics every quarter. These are calculated using

a variety of different surveys and administrative data sources.

In this report, we have allocated exports of transportation, insurance and

government services not included elsewhere to the logistics, finance & insurance, and government sectors respectively.

Commercial services by sector came from an industry breakdown from the

Census of International Trade in Services and Royalties: Year ended June

2011 (not available for 2012).

There is no breakdown of travel exports by sector. Travel exports includes all

spending on goods and services by non-resident visitors to New Zealand. It

overlaps considerably with tourism exports (see below), but includes

spending by international students here for more than a year as well as those here for up to a year (whereas tourism only includes those here for up to a

year) and excludes tourists’ international airfares (which are included in

tourism, but are part of transportation exports in the Balance of Payments).

Classifying exports by sector

Statistics on exports are collected according to product or service type and

not according to the sector that generates the exports.

Statistics New Zealand collects goods trade statistics using the New

Zealand Harmonised System Classification 2012 (NZHSC). This is based on the

World Customs Organization’s (WCO) Harmonized Commodity Description

and Coding System (HS).

Firms are classified into sectors using the Australia and New Zealand

Industrial Classification (ANZSIC) system.

To obtain insight into the export performance of sectors for this report, Statistics New Zealand prepared a concordance that maps HS codes (how

goods exports are classified) to ANZSIC codes (how sectors are classified).

This concordance allocates exports to sectors based on the type of product

the sector is most likely to produce. Hence logs and fruit are attributed to

the agriculture, forestry & fishing sector, while sawn wood products are

attributed to the wood & paper sector, and milk powder and frozen beef

are attributed to food & beverage manufacturing.

Treat with caution

The export data for sectors provided in this report is believed to be broadly

correct, but should be treated with caution. The method used means that

some sectors which clearly do export, have no or few exports allocated.

The clearest example is the wholesaling sector. Many wholesalers operating

in New Zealand export products on behalf of the producers of those

products, or purchase and on-sell them overseas. These exports are

attributed to the sector that manufactured, grew, harvested or mined

them, rather than to the wholesaling sector. Experimental data from

Statistics New Zealand indicates that the value of goods exports by wholesale trade firms was around $8b in 2011.

Exports by sector limitations This report attributes exports to sectors by mapping products and services to the sector

most likely to produce them

98

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